China stocks hit four-year low

AFP and Reuters, SHANGHAI and TOKYO

Wed, Jun 26, 2013 - Page 15

Chinese shares closed down 0.19 percent yesterday to finish at their lowest level in more than four years on persistent worries over a domestic liquidity squeeze, dealers said.

The benchmark Shanghai Composite Index ended down 3.73 points at 1,959.51 on turnover of 104.7 billion yuan (US$17 billion). The close was the lowest since Jan. 16, 2009, when the index ended at 1,954.44 points.

The index tumbled as much as 5.79 percent in afternoon trade before rebounding on bargain-hunting amid rumors state-backed funds had entered the market to buy, analysts said.

“The impact of tight liquidity has been critical and it’s very rare to see the market falling more than 5 percent two days in a row,” Sinolink Securities analyst Tao Jinggang said.

“This is a market in capitulation, it’s not worth trying to catch any technical rebound. We have seen this movie before, look at how much the market tanked in 2008,” said Hong Hao (洪灝), chief strategist at Bank of Communication International Securities (交銀國際證券).

The slide in the CSI300 index of the leading Shanghai and Shenzhen A-share listings pushed its relative strength index (RSI) to 13.7 — its most technically oversold level since the indicator was adopted in 2005.

“The issue now is that these medium-sized banks’ margins may be at risk, although that’s exactly what the PBOC wants to see to stop the expansion of credit. However, the consequences this could have on [small and medium-sized businesses] is real and could have negative implications,” said Chris Weston, chief market strategist at IG.